Top Market Movers of the Week (Sept. 11-15, 2017)

The forex trading week has come and gone, so it’s time to take a look at how the major currencies performed and what drove price action.

Pound domination was clearly a major theme this week since 7 of the top 10 movers of the week are pound pairs and the pound is winning in each and every one of ‘em. And it’s not as clear, but another major theme this week was yen weakness.

So, what drove forex price action this week? And what about the other currencies? How did they fare this week? Time to find out!

But before that, here’s this week’s scoreboard.

And if you only want to find out what happened to a specific currency, then you can just skip to that currency by clicking on it below.

This gave the Greenback some respite and even allowed the Greenback to start pushing back against the safe-havens yen and Swissy on Monday. Although the Greenback was eventually able to fight back against the rest of its peers by Tuesday, although the pound was already showing signs of fighting back at this point.

Another reason for the Greenback’s strength, especially on Tuesday, that’s often cited by market analysts is U.S. Treasury Secretary Steven Mnuchin’s comments during a Tuesday CNBC interview since he reassured the market that a tax reform plan will be passed this year, which supposedly rejuvenated expectations that Trump will be able to (finally) push through with his pro-growth plans after being opposed by his enemies for over half a year already.

After that, the Greenback steadied a bit before climbing higher when the August PPI report was released, which is rather weird on first glance because the +0.2% headline reading missed expectations for a 0.3% rise.

However, it was better than the previous month’s 0.1% decline, which likely triggered speculation that the August CPI report will be better-than-expected.

I’m just (kinda) kidding of course. But I am serious in saying that forex traders were likely opening preemptive positions ahead of the August CPI report since headline CPI rose by 0.4% month-on-month, which is better than the +0.3% consensus and faster than the previous month’s +0.1%, but the Greenback reacted by spiking higher as a knee-jerk reaction before quickly going back down.

However, it’s also possible that some market players were disappointed to learn that the energy component, the 6.3% surge in gasoline prices (+0.0% previous) in particular, was the main driver for the faster headline reading in August.

And since those refineries are restarting operations, chances are good that gasoline prices will weaken in the following months and be a drag on CPI.

Even so, other CPI components, particularly the 0.4% increase in non-energy services (+0.2% previous), helped to push the core reading higher to +0.2% (+0.1% previous), which means that the CPI report was still pretty solid, despite higher gasoline prices being the main driver.

And as such, I’m sticking to my guns in saying that the preemptive buying ahead of the CPI report, as evidenced by the Greenback’s rise despite the PPI miss and the bullish spike about an hour before the CPI report, is the reason why the Greenback quickly encountered selling pressure when the better-than-expected CPI report came out, likely because those who opened preemptive positions began selling into the would-be Greenback rally.

Anyhow, the Greenback bulls and bears began duking it out after the CPI report was released but bears apparently had the upper hand since the Greenback began to tilt lower against its peers, with the exception of the yen, but that’s due to the yen’s own weakness.

I’m (kinda) kidding again, but it is possible that forex traders were opening preemptive bearish bets. It’s also possible that forex traders who rode the uptrend from Monday to Wednesday were unwinding their positions ahead of next week’s FOMC statement.

Anyway, the headline reading for August retail sales did disappoint as expected since it fell by 0.2% month-on-month instead of printing a measly 0.1% uptick. Moreover, the previous reading was downgraded from +0.6% to +0.4%. And the disappointing reading was due to vehicles and parts dealers reporting a 1.6% slump in sales.

What’s more surprising is that core reading only printed a 0.2% increase (+0.5% previous), thanks largely to the 1.0% drop in sales from clothing and accessories stores, as well as the 1.1% contraction in sales from non-store retailers.

The Greenback quite naturally dropped lower as a knee-jerk reaction to the disappointing retail sales report. However, there was no follow-through selling. In fact, the Greenback’s price action became a bit mixed after that. And that may be evidence that some forex traders, especially the Greenback bulls who caught the intraweek trend early on, were already unwinding their positions ahead of the retail sales report and/or some traders opened preemptive positions ahead of the retail sales report.

Anyhow, the Greenback’s weakness in the wake of the CPI report and ahead of the retail sales report effectively capped the Greenback’s gains. And so the Greenback only ended up as the third best-performing currency of the week.

On an interesting (but kinda irrelevant) note, the Greenback was actually the top-performing currency of the week by Thursday. But the Greenback’s own weakness after the CPI report and the hawkish BOE statement allowed the pound to just steamroll the Greenback. But it’s still worth noting that the Greenback was the top-performing currency of the week at one point.

And on that note, the FOMC statement is coming up next week, so make sure to keep an eye on the Greenback.

The Euro

The euro was one of the major losers this week. And while the euro’s price action looks like a mess again, it does get better if we remove EUR/GBP from the picture.

Overlay of EUR Pairs: 1-Hour Forex Chart

As you can see, the euro started the week mixed, but that’s a simplistic interpretation since the euro gained against the Swissy and the yen, but lost out to everything else.

And if you checked out my write-ups on the yen and the Swissy, you’ll learn that risk aversion was fading at the time, so the euro’s gains against the safe-haven yen and Swissy were due to weakness on the part of those two currencies, rather than strength on the part of the euro.

The more accurate interpretation, therefore, is that the euro actually started out on a weak footing despite last week’s ECB presser, wherein ECB Overlord Draghi openly stated the the ECB will likely be making its mover on October when he said that “unless a risk that is not seen today materialises, we should be ready to give the bulk or to take the bulk of these decisions in October.”

Also, the Dragster didn’t try to talk down the euro very much at the time.

However, ECB Board Member Benoit Coeure gave a speech on Monday. And unfortunately his speech was rather dovish.

He first said that the exchange rate for the euro is not yet worryingly high, but he still tried to talk down the euro’s strength anyway when he said the following:

“Compared with past demand shocks, policy will remain more accommodative for longer, thereby likely muting further the pass-through of any growth-driven exchange rate appreciation.”

“At the current juncture, however, the policy-relevant horizon – the ‘medium term’ concept in our monetary policy strategy – is likely to be longer given the persistence of subdued inflationary pressures.”

In simple English, he’s warning (or threatening) that if the euro continues to strengthen, then prolonging the ECB’s accommodative monetary policy would help to offset the negative effects that a strong euro will bring.

In addition, Coeure warned that:

“Exogenous shocks to the exchange rate, if persistent, can lead to an unwarranted tightening of financial conditions with undesirable consequences for the inflation outlook.”

“Against this background, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring.”

After that, the euro became more mixed but found a bottom and traded roughly sideways on most pairs come Tuesday before resuming its broad-based slide on Wednesday. And this time, EUR/CHF and EUR/JPY were dragged along.

No clear reason why, however. Although some market analysts pointed to Greenback strength which pulled EUR/USD down, dragging other euro pairs with it. And that does sound plausible since EUR/USD took a heavy hit on Wednesday, but the damage suffered by the other euro pairs weren’t as big.

Well, whatever the case may truly be, the euro’s price action became a complete mess after that.

However, the euro’s early losses on Monday and Wednesday sealed the euro’s fate. Fortunately for the euro, the divergent price action on EUR/CHF and EUR/JPY on Monday also ensured that the euro won’t be this week’s biggest loser.

The Pound Sterling

Overlay of GBP Pairs: 1-Hour Forex Chart

I told y’all last week to keep an eye on the pound since it was likely to be one of the livelier currencies this week. And boy was that advice good since the pound completely dominated this week and pound pairs showed the greatest volatility to boot.

The pound already showed signs of strength last week. But as noted back then, losses suffered last Monday and Thursday effectively capped the pound’s gains, and so the pound ended up mixed. And the pound’s losses back then were mainly due to Brexit-related stuff.

This week, however, all that Brexit-related stuff took a backseat since the second reading of the E.U. Withdrawal Bill passed through the House of Commons on Tuesday. And the said Withdrawal Bill is meant to avoid a “cliff edge” and it’s passing is therefore kinda good. Although critics of the Bill say that it gives Theresa May too much power, but that’s still kinda good in a way since it will somewhat improve Theresa May’s negotiating position.

Given those two major Brexit-related developments, the way was opened for the spotlight to fall on U.K. economic data and BOE rate hike expectations.

And the opening salvo came from the U.K.’s latest CPI report since it printed a 0.6% month-on-month increase in August, which is faster than the +0.5% consensus and a welcome development after the previous month’s 0.1% dip. Moreover, the 0.6% climb is the strongest monthly rise in six months and also puts an end to three consecutive months of ever poorer monthly readings.

Year-on-year, CPI accelerated from +2.6% to a three-month high of +2.9, beating the consensus for a softer 2.8% rise. More importantly, the annual reading was able to beat the BOE staff forecast of +2.7%, as noted in the August Inflation Report.

As such, headline CPI evolved at a faster pace than expected, which raised the probability that the BOE will sound more hawkish in the upcoming BOE statement, which is why the pound jumped for joy.

Unfortunately, the U.K.’s latest jobs report was released on Tuesday. The jobs report was actually pretty good, since the jobless rate fell further from 4.4% to a new record low of 4.3% in the three months to July while the number of people claiming unemployment benefits fell by 2.8K in August instead of rising by 0.8K.

However, forex traders were apparently more focused on wage growth. And that, sadly, was a disappointment since, nominal average weekly earnings (bonuses included) only rose by 1.4% year-on-year in July, which is the weakest reading in three months and puts an end to two straight months of improving readings. The weak reading also brings the three-month average to 2.1%, which is below the 2.3% consensus.

On a more upbeat note, the weak reading was actually due to the 11.1% drop in bonuses. If bonuses are stripped to get regular earnings, then wages grew by 2.0%, which is the same pace as in June.

But on a more downbeat note, real earnings (inflation is taken into account) dropped by 1.2%, which is the hardest drop in three months. And if bonuses are stripped, then real earnings fell by 0.5%, which is also the poorest reading in three months and marks the sixth consecutive month of declines.

Fortunately for the pound, the BOE statement finally rolled around and it was good. Really good.

I have already listed the major points here and Forex Gump has his own take, which you can read here.

The gist of it all, though, is that the BOE had an upbeat assessment of and an optimistic outlook on the U.K. economy, which is why the BOE concluded with this rather hawkish message (emphasis mine):

“A majority of MPC members judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target.”

The clear hint at a future rate hike gave the pound a substantial boost. But the phrase “over the coming months” is actually kinda vague, which is likely why the pound’s rally stalled a bit after the initial surge.

No worries, though, since BOE MPC Member Vlieghe came to save the day on Friday.

You see, Vlieghe is known for being one of the more dovish BOE MPC members out there. However, he revealed near the end of his speech on Friday that he defected to the hawkish camp when he said the following:

“Until recently, I thought the appropriate response of monetary policy was to be patient, given modest growth and subdued underlying inflationary pressure. But the evolution of the data is increasingly suggesting that we are approaching the moment when Bank Rate may need to rise.”

And the fun doesn’t stop there because he was asked for forward guidance during the Q&A session and we got this little gem:

“It’s obviously more than unwinding last August (when the BoE cut rates). We are making that judgment over a three-year period, so it will depend on how the data evolves.”

In simpler terms, if the BOE starts hiking, then it won’t stop at just one, provided the U.K. economy continues to evolve in a positive direction of course.

And given the unexpected revelation that dovish Vlieghe is now a hawk, as well as hints that the BOE is open to more than one hike, the pound spurted even higher across the board to end the week as the one currency to rule them all. Woo hoo! Give me them pips!

The Swiss Franc

The Swiss franc was the second strongest currency after the yen last week. And this week, the Swissy had a reversal of fortune since it was the second weakest currency, also after the yen.

But going further, let’s first bring some order out of that chaotic price action by removing CHF/JPY and GBP/CHF.

Overlay of CHF Pairs: 1-Hour Forex Chart

Presto! As you can see, most Swissy pairs suffered the bulk of their losses on Monday and Tuesday before becoming a mess after that. And the likely reason for the Swissy’s weakness is returning risk-on vibes after fears related to Hurricane Irma and North Korea began to ease, which naturally means less safe-haven demand for the Swissy.

It’s also possible that forex traders were abandoning ship ahead of the SNB statement, just in case the sneaky SNB tries to weaken the Swissy again.

However, instead of repeating its mantra that the Swissy is “still significantly overvalued,” the SNB said that (emphasis mine):

“Since the last monetary policy assessment, the Swiss franc has weakened against the euro and appreciated against the dollar. Overall, this development is helping to reduce, to some extent, the significant overvaluation of the currency.”

Even so, the SNB said that:

“The Swiss franc nevertheless remains highly valued, and the situation on the foreign exchange market is still fragile.”

And as such, the SNB reiterated its “willingness to intervene in the foreign exchange market as necessary … in order to reduce the attractiveness of Swiss franc investments and thus ease pressure on the currency.”

The Swissy did try to jump higher when the SNB said that the “significant overvaluation” of the Swissy has been reduced. However, the Swissy was quickly beaten back down, likely because the SNB stressed that the Swissy is still “highly valued” before repeating its promise (or threat) to intervene in the forex market to weaken the Swissy (*cough* currency manipulator *cough*).

In fact, it’s highly probable that the Swissy was the one that prevented the Swissy from taking off.

And for those who are interested, yes, the Swissy and the euro were still dancing somewhat in tandem, but the Swissy was showing more weakness on Monday and Tuesday.

The Japanese Yen

Man, the yen’s fortune just keeps on flipping between bad and good. Two weeks ago, it got a severe beatdown. Last week, it ended up doing most of the beating and was the top performing currency. And this week, the yen got its guts stomped yet again and was back at the bottom of the forex heap.

As usual, yen pairs were taking their cues from bond yields. We can see that more clearly if we just remove the annoying price action from GBP/JPY.

See? Anyhow, the yen suffered the bulk of its losses when bond yields trended higher from Monday until Wednesday. And according to market analysts the rise in bond yields at the time was due to the unwinding of safe-haven bets, thanks to easing worries related to North Korea and Hurricane Irma.

Other than that, U.S. Treasury Secretary Steven Mnuchin’s comments during a Tuesday CNBC interview was also cited as positive for bond yields since he reassured the market that a tax reform plan will be passed this year.

The slide in bond yields wasn’t as steep, though, since the safe-haven demand for bonds was more being offset by market players who were also selling their bond holdings in anticipation of future tightening moves from both the ECB and the BOE, market analysts say.

And expectations that the BOE and ECB will tighten in the future apparently won out come Friday since bond yields clawed their way back up, dragging the yen down.

Incidentally (well, not really), the yen started retreating a few hours before bond yields started rising and about an hour after news about the North Korean missile launch began to spread.

There were no clear catalysts, but it’s very likely that some market players were abandoning the yen when they realized that the source of renewed risk aversion was the North Korean missile test. After all, the missile did fly over Japan.

And if that didn’t help scare traders away and dampen safe-haven demand for the yen, then North Korea’s threat that “The four islands of the [Japanese] archipelago should be sunken into the sea by the nuclear bomb of Juche. Japan is no longer needed to exist near us” likely did. And say what you will about North Korea, but their threats tend to be pretty epic.

By the way, the BOJ statement is scheduled for next week. That event tends to be a dud. But who knows? Maybe the BOJ will surprise us by announcing a new monetary policy framework or announce a plan to exit its super loose monetary policy, so just keep on your toes.

And for the newbies out there, the yen’s inverse correlation with bond yields strengthened mainly because of the so-called “QQE With Yield Curve Control” framework that was introduced during the September 2016 BOJ statement.

In basic terms, the framework states that the BOJ’s bond purchases would depend on the yield of 10-year Japanese government bonds (JGBs). If the yield of JGBs go above 0%, then it’s the BOJ’s job to buy bonds in order to pull the yield back down to around 0%.

And bond purchases, of course, increase the money supply which weakens the yen. So now you know (or remember if you somehow forgot) why the yen tends to run away when bond yields rise and, conversely, gains strength when bond yields retreat.

The Canadian Dollar

The Loonie had a more mixed performance this week but still a net winner overall, so it looks like the Loonie’s winning streak is not over yet.

Before going further, let’s first remove GBP/CAD from that chart to get a better picture.

Overlay of CAD Pairs & Crude Oil (Black Line): 1-Hour Forex Chart

As you can see above, oil (black line) trended higher from Monday to Thursday before steadying on Friday. And according to market analysts, oil was in rally mode this week because of expectations that demand for crude oil will pick up once U.S. oil refineries restart their operations after getting disrupted by Hurricane Harvey, as well as higher oil forecasts from OPEC and a note from the IEA saying that the oil market is rebalancing as OPEC production falls.

But as you can also see above, the Loonie didn’t really track oil prices that closely. Most Loonie pair did track oil prices higher on Monday and Wednesday, but the Loonie was on the back foot on Tuesday and mixed on Thursday, even as oil prices climbed.

The Loonie’s mixed price action on Friday, meanwhile, is kinda understandable since oil was also trading sideways on that day, so opposing currencies dictated price action on Loonie pairs.

Going back to the Loonie’s weird price action on Tuesday and Thursday, what happened then, you ask? Well, there were no economic reports or major news events on Tuesday. None. Zero. Nada. Zilch.

So why did the Loonie dip on that day? Well, according to some market analysts, Canadian bond yields were falling at that time, which was likely a sign of profit-taking by market players after last week’s bullish spike in the wake of Canada’s rate hike.

As for Thursday’s mixed price action, there’s no clear reason for that since the Loonie just ignored the stronger reading for Canada’s NHPI.

There were a few reports related to NAFTA that were making the rounds, though, such as news about bickering between the U.S., Canada, and Mexico after the U.S. tried to push for a “sunset clause” that would automatically terminate the renegotiated NAFTA deal after five years unless all parties agree to keep it alive.

Perhaps reports like those helped to dampen demand for the Loonie. However, it’s also highly probable that market players are just in wait-and-see mode ahead of next week’s top-tier economic reports.

And on that note, make sure to keep a close on the Loonie next week since we’ve got Canada’s retail sales and CPI reports coming up. Forex traders will likely take cues on the future direction of the BOC’s monetary policy (and the Loonie) from those two top-tier economic reports. So we’ll hopefully get to see more volatility and directional movement from the Loonie next week.

The Australian Dollar

Overlay of AUD Pairs & Iron Ore (Black Line): 1-Hour Forex Chart

The Aussie was mixed this week, but still a net loser. And looking at the chart above, it looks like the Aussie’s price action was all over the place. But if we remove GBP/AUD from the overlay of AUD pairs, then we get the following.

Overlay of AUD Pairs & Iron Ore (Black Line): 1-Hour Forex Chart

Yeah, it’s still a mess, with diverging price action in some places, which means that the Aussie was vulnerable to opposing currency price action.

Also, Aussie pairs didn’t really track the slide in iron ore prices this week. By the way, iron ore was in the dumps this week because of poor Chinese data, market analysts say.

As for some details, Australia generated 54,200 jobs in August, which is the biggest gain since October 2015 and marks the 11th straight month of job gains to boot.

Even better, job gains came mainly from the 40,100 increase in full-time jobs. In addition, the participation rate jumped from 65.1% to 65.3%, its highest since September 2012, but the jobless rate remained at 5.6% as expected, which means that the Australian economy was able to absorb the influx of new and returning workers, which is great news for Australia and a great reason for the Aussie to spike higher.

What’s not so great (for Aussie bulls and volatility junkies in general) is that there was no follow-through buying since the Aussie quickly returned to its mixed and messy ways.

There’s no clear reason for the Aussie’s mixed price action and most market analysts just choose to ignore the Aussie’s wonky price action this week.

It is possible, however, that forex traders are still mulling about the RBA’s next step after the RBA decided to maintain its monetary policy last week. Perhaps next week’s RBA minutes will shed more light on that and hopefully give the Aussie a much-needed volatility injection.

The New Zealand Dollar

Overlay of NZD Pairs: 1-Hour Forex Chart

After six weeks of broad-based weakness, the Kiwi’s losing streak finally came to an end since the Kiwi was the second best-performing currency of the week. Boo hoo hoo! Yeah, the regular readers out there probably know that I’ve been bearish on the Kiwi for the past few weeks since I’ve been counting (with hidden glee) the number of consecutive weeks of Kiwi weakness.

Before we move on, let’s first remove GBP/NZD’s pesky price action. In hindsight, I guess I should have just removed all pound pairs from the start when discussing the other currencies. Oh, well.

Overlay of NZD Pairs: 1-Hour Forex Chart

Anyhow, I mentioned last week that aside from the prevalence of risk aversion, some market analysts also pointed to election jitters ahead of New Zealand’s September 23 general elections as the reason for last week’s broad-based weakness.

Well, it looks like those market analysts may be right since the Kiwi got a leg up on Tuesday, apparently because of easing political uncertainty due to the latest poll from Newshub which showed that the National Party’s lead against the Labour Party has widened, with voting intentions for the National Party rising by 4% to 47.3% while voting intentions for Labour deteriorated by 1.6% to 37.8%.

More importantly, commentary from Newshub noted that “National would have a majority of 61 seats in a 121-seat Parliament on this polling.”

A majority government means more control and less political uncertainty and drama (and less entertainment value because of less drama), so the Kiwi spiked higher across the board.

Sadly (for Kiwi bears like me), Business NZ released its latest PMI report and the headline reading jumped from 55.5 to a three-month high of 57.9, ending two straight months of weakening readings in the process.

And that apparently helped to push the Kiwi higher. Although it probably helped that risk sentiment improved on Friday since most global equity indices were in the green on that day, with the exception of European equity indices, which were having a bad day.

Of course, it’s also possible that Kiwi bears who have been short on the Kiwi for the past few weeks were just taking profits off the table ahead of the September 23 New Zealand general elections next week.

Every day, I will present to you my findings and daily commentaries on what recently happened in the economic arena, possible shifts in sentiment, economic events to watch out for, and their effects on currencies.

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